Durbin Loomed Too Large in Court's Debit Opinion: Fed

U.S. District Court Judge Richard Leon “gave undue weight” to some of the opinions of Sen. Richard Durbin (D-Ill.) when evaluating its debit interchange regulation, the Federal Reserve said this week.

The regulator made the contention in its brief asking the Washington-based judge to leave its existing debit interchange rule in place pending the Fed's appeal of his July 31 decision.

This argument, along with some others, is meant to demonstrate that the appeal effort has a significant chance of success, the Fed’s attorneys argued.

“The court also gave undue weight to the floor statement of the bill’s sponsor in determining that the statutory language was so unambiguous as to foreclose agency interpretive authority,” the Fed asserted, citing other cases which had held that congressional intent cannot be drawn from looking at the opinions of a single legislator.

“The remarks of a single legislator, even the sponsor, are not controlling in analyzing

legislative history,” the Fed wrote, citing a decision which held that “'[w]hile a sponsor’s statements may reveal hisunderstanding and intentions, they hardly provide definitive insights into Congress’understanding of the meaning of a particular provision.”

“Thus members of Congress, in voting on a measure, must be presumed to have relied on the meaning of the words read in context on a printed page. Moreover, a statute’s sponsor may well be pursuing a political agenda in his floor discussion that judges are ill-equipped to detect.”

Instead of looking to the senator's floor statement, the Fed argued, the court should have focused on the plain meaning of the law read in the context of its intent to control the actions of debit issuers or networks.

Reading the Durbin Amendment to the Dodd-Frank Act in that light supports the Fed's interpretation that debit issuers only have to provide more than one debit processing option per transaction type if they are issuing cards where only one type of debit processing is possible, the Fed asserted.

In other words, if a credit union were to issue a card on which only transactions validated with a signature (or one where transactions were only validated with a PIN) then it would have to provide two possible signature debit or PIN debit networks. But in a situation where a card already provides the basic choice between signature and PIN, the debit issuer can provide only one network per method, provided they were distinct and independent of one another.

The Fed also argued that in any given transaction involving a card with dual authentication methods, if a particular merchant’s routing options are restricted because the merchant only takes one form of authentication or because the customer chooses one over another, that is out of its ability to regulate because those factors have nothing to do with the debit card issuer or network.

Leon had thrown out two-thirds of the Federal Reserve's current debit interchange regulation on July 31, agreeing with the opinion of the case's merchant plaintiffs that the Fed had failed to follow the law in developing the regulation. But Leon refrained from executing his decision until he heard from all parties to the case about what they believed the best course of action would be. The Fed appealed Leon's decision on Aug. 21. This week all sides urged him to leave the rules governing debit caps and provider networks in place until further appeals are exhausted.